Price is not Necessarily a Reflection of Value

Price is not necessarily a reflection of value.
Describe a specific situation in which price is an accurate reflection of value. Discuss what you think determines when price reflects value and when it does not.

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According to economic principles, price is more likely to reflect value in a free marketplace that encourages competition. In cases of a monopoly, prices of a certain product or service surge tremendously. On the other hand, plethora of competitors can have the opposite effect of deflating prices. Perhaps economic and mathematical calculations can determine the "true" value of a product of service. However, in practical, real world terms, price is not an accurate reflection of value. Value, as a subjective concept, differs for each person and society and can waver depending on the place, fashion, economic situation of the times. One cannot designate an objective price for a product or service but the system of pricing items as an indicator of value is a necessary action in a world with scarce resources.

Indeed, price is not necessarily a reflection of value due to the fact that value is a subjective concept. What is valuable for one person may not be valuable to another. For instance, a hearty meal is more valuable to a starving child in Africa more than a privileged child who has his meals served to him at the same time every day. A famous example involves the tulips in Holland during the 1600s that sold at an unbelievably high price but suddenly collapsed. Indeed, even recent history with the housing market bubble demonstrates how prices can deviate greatly from the "intrinsic" value of an item. Indeed, prices of items go up and down depending on fads, need and multiple factors.

Many people would also argue that price cannot reflect value in terms of humans and human services. For example, adoptions involve exchange of money but adoptive parents would not say that their baby's value is reflective of its price. People sometimes buy life insurance as a way to ensure the financial security of their dependents in case of sudden death. The insurance companies place a value on the life due to certain risk and health factors but people would argue that the price is not an accurate reflection of the person's worth. Furthermore, most would assert that a person's salary is not necessarily reflective of their value in society. A common example is the pay of a exemplary teacher; he or she may not be paid huge sum but his or her services may be considered invaluable to students and society.

In the abstract, price does not necessarily reflect value. However, in a limited setting where one compares like items in a marketplace, one can often rely on pricing as a reflection of value. For instance, when one is shopping in a Walmart and looking for a frying pan, he or she can generally rely on the higher price as being more value. Of course, the term value may not only reflect quality but also name-brand recognition, origin, etc. Even in this limited setting, price still cannot reflect true value but rather comparative value.

In our present world, there are too many people and few resources; pricing items and services help organize society by providing a way to disburse resources. Those with more fortunate situations in life can afford to buy the higher priced and therefore, more "valuable" items. However, in the real world, the price of an item or service does not necessarily reflects value because value, as a subjective concept, differs for one person to the next.